CMFAS Collective Investment Schemes M3 4 — Questions and Answers
Question 1: What is an index fund?
- A fund that tries to beat the market
- A fund that tracks and replicates the performance of a specific market index (Correct answer)
- A fund that invests in private companies
- A fund that changes strategy frequently
Correct answer: A fund that tracks and replicates the performance of a specific market index
An index fund is a passively managed fund that seeks to replicate the performance of a specific market index, such as the Straits Times Index.
Question 2: What is the difference between active and passive fund management?
- No difference
- Active managers try to outperform the market; passive managers track an index (Correct answer)
- Active management is always cheaper
- Passive management always outperforms
Correct answer: Active managers try to outperform the market; passive managers track an index
Active management involves selecting investments to beat a benchmark, while passive management replicates an index. Active funds typically have higher fees.
Question 3: What are the key risks associated with investing in a CIS?
- No risks at all
- Market risk, liquidity risk, currency risk, and manager risk (Correct answer)
- Only inflation risk
- Only currency risk
Correct answer: Market risk, liquidity risk, currency risk, and manager risk
CIS investments face multiple risks including market risk (prices fall), liquidity risk (unable to sell), currency risk (exchange rate changes), and manager risk (poor decisions).
Question 4: What is a hedge fund?
- A fund that invests in agriculture
- An alternative investment fund that uses advanced strategies to generate returns (Correct answer)
- A fund guaranteed by the government
- A fund that only invests in safe assets
Correct answer: An alternative investment fund that uses advanced strategies to generate returns
Hedge funds use advanced investment strategies such as leverage, short selling, and derivatives to seek absolute returns regardless of market conditions.
Question 5: What is the minimum subscription amount for a restricted CIS in Singapore?
- $1,000
- $10,000
- $100,000
- $200,000 (Correct answer)
Correct answer: $200,000
A restricted CIS can only be offered to accredited investors or in minimum subscription amounts of $200,000 or more.
Question 6: What is the benchmark for measuring a fund's performance?
- The fund manager's salary
- A market index or reference rate against which the fund's returns are compared (Correct answer)
- The fund's sales charge
- The inflation rate only
Correct answer: A market index or reference rate against which the fund's returns are compared
A benchmark is a standard (usually a market index) against which a fund's performance is measured to evaluate whether it is doing well.
CMFAS Collective Investment Schemes M3 4
What is an index fund?